The Basel Committee will revise the Basel II Capital Framework to establish higher capital requirements for certain complex structured credit products, such as so-called "re-securitisations" or CDOs of ABS. It will also strengthen the capital treatment of liquidity facilities extended to support off-balance sheet vehicles such as ABCP conduits.
In July, the Committee will publish for consultation global sound practice standards for the management and supervision of liquidity risks, addressing many of the shortcomings witnessed in the banking sector, including stress testing practices and management of on- and off-balance sheet activities.
Furthermore, the Committee will review the current value-at-risk based treatment in the trading book, and will extend the guidelines for "incremental default risk" to include other potential event risks in the trading book.
The Committee will also monitor Basel II minimum requirements and capital buffers and will take measures in case of the analysis reveals any shortcomings in capital cushions.
Finally, it will issue guidance to strengthen risk management and supervisory practices. Areas include the management of firm-wide risks, stress testing practices, and off-balance sheet exposures.
More detailed proposals will be published later this year, including an impact assessment and a consultation on the “event risk proposal”.
Press release
Further information:
Basel II
Incremental Default Risk in the Trading Book
Liquidity Risk: Management and Supervisory Challenges
© Graham Bishop
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